10-QPeriod: Q2 FY2005

COHERENT CORP. Quarterly Report for Q2 Ended Dec 31, 2004

Filed February 9, 2005For Securities:COHR

Summary

COHERENT CORP. (COHR), formerly II-VI Incorporated, reported a strong financial performance for the quarter and six months ended December 31, 2004. Revenue growth was a significant driver, with a 25% increase year-over-year for the third quarter and a 22% increase for the six-month period, largely fueled by demand in the Infrared Optics and Near-Infrared Optics segments. Net earnings also saw substantial growth, increasing by 69% and 80% respectively for the comparable periods. A key event during the quarter was the acquisition of Marlow Industries, Inc. for approximately $29.7 million, which is expected to create synergies and contribute to future growth. This acquisition, along with robust bookings across several segments (particularly Compound Semiconductor Group, Infrared Optics, and Near-Infrared Optics), positions the company for continued expansion. The company also refinanced its credit facility, increasing its capacity to $60 million, indicating a focus on supporting its growth initiatives.

Key Highlights

  • 1Revenues increased by 25% to $43.2 million for the three months ended December 31, 2004, compared to $34.6 million in the prior year period.
  • 2Net earnings grew significantly by 69% to $5.8 million ($0.39 per diluted share) for the three months ended December 31, 2004, up from $3.4 million ($0.23 per diluted share) in the prior year.
  • 3The company completed the acquisition of Marlow Industries, Inc. for approximately $29.7 million, expanding its presence in thermoelectric solutions.
  • 4Bookings increased by 20% to $49.4 million for the three months ended December 31, 2004, reflecting strong customer demand across multiple segments.
  • 5The Infrared Optics segment demonstrated robust performance with an 18% revenue increase and a 49% increase in segment earnings.
  • 6The Near-Infrared Optics segment saw substantial revenue growth of 60% and a significant 259% increase in segment earnings.
  • 7The company successfully replaced its credit facility with a new $60 million secured credit agreement to support its strategic growth.

Frequently Asked Questions

Revenue growth was primarily driven by increased product demand in the Infrared Optics and Near-Infrared Optics segments, reflecting higher laser production and usage. Stronger market demands from Original Equipment Manufacturers (OEMs) and aftermarket customers in the industrial carbon dioxide (CO2) laser optics market also contributed significantly.

The acquisition of Marlow Industries, Inc. is significant as it adds a leader in thermoelectric cooling and power generation solutions to COHR's portfolio. This is expected to create synergies in material growth technology and leverage COHR's global manufacturing and distribution networks to enhance combined operational and financial results. The results of Marlow were included for one month in the reported financial statements.

COHR replaced its $45 million secured credit facility with a new $60 million secured credit agreement in connection with the Marlow acquisition. This new facility has a five-year term with a $30 million term loan option and a $30 million line of credit option. Total debt increased from $15.5 million at June 30, 2004, to $43.7 million at December 31, 2004, primarily due to new borrowings for the acquisition.

The company is exposed to foreign exchange risks, primarily with the Japanese Yen. While derivative instruments are used to mitigate this risk, remeasurement of certain foreign subsidiaries' financial statements resulted in gains and losses. For the three and six months ended December 31, 2004, foreign currency remeasurement gains were $(35,000) and $156,000, respectively. Translation adjustments for other foreign subsidiaries are recorded in accumulated other comprehensive income.